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Mortgage and Home Loan

I kept saying I refinanced my mortgage. Actually I don’t have a mortgage. Nor did I ever have one. A mortgage does not have financial terms. Refinancing it makes no sense either.

The word "mortgage" is probably one of those most widely misused words that eventually the misnomer will trump its true definition. When people say they are applying for a mortgage, paying a mortgage, refinancing a mortgage, they really mean they are applying for, paying, or refinancing a home loan.

A home loan is a loan. It has its terms: principal, interest rate, number of months to pay, etc. etc. The home loan is evidenced by a Promissory Note. The Note is secured by the borrower’s home. The security document that pledges the home in exchange for the loan is called the mortgage in some states.

The mortgage is given by the borrower to the lender. The borrower doesn’t have a mortgage. The lender has it. The party giving the mortgage, the borrower, is called the mortgagor. The party receiving the mortgage, the lender, is called the mortgagee. The mortgagee (lender) has the mortgage from the mortgagor (borrower). If the borrower defaults on the loan, the mortgagee goes to a court and asks a judge to foreclose the borrower’s home. This is called a judicial foreclosure.

That’s how it works in some states. In other states, the borrower does not give a mortgage to the lender. The borrower signs a Deed of Trust. That makes the borrower the grantor of the trust, and the lender the beneficiary of the trust. There’s a 3rd party trustee for the Deed of Trust. The trustee listens to whoever ends up owning the Note. If the loan servicer tells the trustee to sell the home, the trustee will sell the home. With a Deed of Trust, the trustee doesn’t even have to go to a court to get a judge to approve the foreclosure. They do it by themselves. It’s called a non-judicial foreclosure.

My state uses a Deed of Trust. I’m the grantor. MERS is the beneficiary. Some articles on the web say 34 states in the U.S. use a Deed of Trust either exclusively or primarily, although I count only 21 states in this Mortgage and Deed of Trust State Matrix published by a loan document production company Document Systems, Inc.

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